Labour will force a Commons vote this week aimed at creating new legal safeguards against fiscal disasters such as Liz Truss’s catastrophic mini-budget, which sent the financial markets into meltdown and drove up mortgage rates.
The party’s plan for a “fiscal lock” to protect personal, family and the national finances from reckless politicians will be contained in an amendment to the king’s speech that will be voted on by MPs on Tuesday. The manoeuvre will present Conservative backbenchers with a dilemma over whether to back a Labour amendment, or vote against what is a plan designed to embed fiscal responsibility into the budgetary process, and protect it from wild or accidental political misjudgments.
The vote will take place on the same day as a “growth commission” set up by the former prime minister Truss will publish an alternative budget, which it says will contain a raft of “exciting” economic policies to cut taxes and deregulate the economy, challenging conventional economic thinking.
Under the Labour plan spelled out in its amendment, legislation would be introduced to ensure that the independent Office for Budget Responsibility (OBR) could publish its own report on the likely dangers or benefits of any substantial tax and spending plans to be introduced in a budget or other fiscal event.
When Truss’s chancellor, Kwasi Kwarteng, announced his tax-cutting mini budget in September 2022, he refused to publish the OBR forecast, sending the financial markets into a tailspin that led rapidly to his dismissal by Truss, and then the almost immediate reversal of most of the plans by Kwarteng’s successor, Jeremy Hunt.
When the contents of the OBR report on the Kwarteng mini-budget were eventually made public, they showed it had warned that the economy was already on course for a year-long recession, and that higher interest rates were pushing up the cost of servicing the UK’s debts.
The Labour amendment will propose to “give the Office for Budget Responsibility the power to produce and publish forecasts for any government fiscal event which includes permanent tax and spending decisions over a threshold to be specified in a new Charter of Budget Responsibility”.
Because the vote is on an amendment to the king’s speech, MPs cannot abstain, leaving Conservatives with no obvious easy political escape route.
Writing in the Observer, shadow chancellor Rachel Reeves says it is time to give the OBR more powers after 13 years of chaotic Conservative economic management. “That starts with taking the action necessary to prevent a repeat of Liz Truss’s disastrous mini-budget. As a former economist at the Bank of England, I know the damage that is done when our institutions are undermined: working people are worse off,” says Reeves.
“When the Conservatives crashed the economy, mortgages and rents soared as interest rates rose. We can never let that happen again.”
She adds: “That is why I have pledged that a future Labour government will strengthen the Office for Budget Responsibility so that any administration making significant, permanent tax and spending changes will be subject to an independent forecast of its impact.
“This will bring security back to our economy and prevent a re-run of last year’s chaos.”
She adds: “This week, Labour will put those plans to a vote in parliament. If Sunak wants to put country first, then he will show the strength to stand up to those in his party that crashed the economy and vote with us. If not, he will prove that all he can offer is more of the same and that the biggest risk to the economy is another five more years of the Conservatives.”
One of Labour’s main objectives in opposition has been to rebuild the party’s reputation for economic competence and fiscal responsibility. In recent opinion polls, Labour has had a strong lead on these issues over the Conservatives, having reversed a longstanding trend which saw the Tories favoured by more voters for sound economic management.